Overview of TDS

TDS is one of the modes of collection of taxes, by which a certain percentage of amounts are deducted by a person at the time of making/crediting certain specific nature of payment to the other person and deducted amount is remitted to the Government account. It is similar to "pay as you earn" scheme also known as Withholding Tax in many other countries, one of the countries is USA. The concept of TDS envisages the principle of "pay as you earn". It facilitates sharing of responsibility of tax collection between the deductor and the tax administration. It ensures regular inflow of cash resources to the Government. It acts as a powerful instrument to prevent tax evasion as well as expands the tax net.

Who shall deduct tax at source?

Every person responsible for making payment of nature covered by TDS provisions of Income Tax Act shall be responsible to deduct tax.

However in case of payments made under sec. 194A, 194C, 194H, 194I and 194J in respect of individual and HUF, only if the turnover or professional receipt exceeds sum of Rs. 40 lakh or Rs. 10 lakh respectively (the limits will be Rs.60 Lakh or Rs. 15 Lakh respectively w.e.f. 01.07.2010) in previous year, he is required to deduct tax at source.

These persons are mainly:

- Principal Officer of a company for TDS purpose including the employer in case of private employment or an employee making payment on behalf of the employer.

- DDO (Drawing & Disbursing Officer), In case of Govt. Office any officer designated as such.

- In the case of "interest on securities" other than payments made by or on behalf of the Central govt. or the State Government, it is the local authority, corporation or company, including the Principal Officer thereof.

Such person is called Deductor while the person from whom the tax is deducted is called Deductee.

Tax must be deducted at the time of payment in cash or cheque or credit to the payee's account whichever is earlier. Credit to payable account or suspense account is also considered to be credit to payee's account and TDS must be made at the time of such credit.

What a deductor must do?

1. Obtain TAN

Every deductor is required to obtain a unique identification number called TAN (Tax Deduction Account Number) which is a ten digit alpha numeric number e.g.DELH90468K.

This number has to be quoted by the deductor in every correspondence related to Income Tax matters concerning TDS.

2. He/She should obtain PAN of the deductee.

3. He/She should deduct the tax at correct rate.

4. The tax deducted has to be deposited in the designated banks within specified time. (Govt. deductors shall transfer the tax deducted through book entry in Government account).This is detailed below:

▬ By or on behalf of the Government  : on the same day,

▬ By or on behalf of any other person : before the 7^th of the following month.

However, if the amount is credited in the books on 31^st March then the tax should be remitted by 31^st May.

Note: w.e.f., 01.04.2008 electronic payment of tax has to be done by all corporate assesses and all persons whose cases are auditable under section 44B.

5. Use challan no. 281 for depositing TDS amount.

6. File statements of tax deduction in the prescribed time.

The due dates for filing of TDS/TCS statement are :

15^th of July for Quarter 1,

15^th of October for Quarter 2,

15^th of January for Quarter 3 and

15^th June for last Quarter however for TCS statements the due date is 30^th April.

7. Use correct form to file TDS/TCS Returns. They are:

Form 24Q        for salaries

Form 26Q        for non salaries

Form 27EQ      for TCS

Form 27A/27B Control sheet for electronic TDS/TCS

It may be noted that the following persons have to compulsorily file e-TDS /e-TCS statements

• All government offices/Departments
• All companies /corporations
• All persons whose cases are auditable
• All persons whose TDS statements contain more than 50 deductees.

Dos & Dont's for filing TDS Returns

Dos

• Ensure that TDS return is filed with same TAN against which TDS payment has been made & TDS certificate is issued.
• Ensure that correct challan particulars including CIN and amount is mentioned.
• Correct PAN of the deductee is mentioned.
• Correct section is quoted against each deductee record.
• Correct rate is quoted against each deductee record.
• File correction statement as soon as discrepancy is noticed
• Retain the original FVU file to enable future corrections
• Make use of free of charge RPU provided through TIN-NSDL.com
• Download details of challan from challan status enquiry (TAN based view) from TIN-NSDL.com
• Registration for TAN enables you to avail additional facilities from Tax Information System.
• Always verify status of TDS returns from Tin NSDL to ascertain the discrepancy, if any, and/or whether your TDS return stands accepted or rejected by the system.

Dont's

• Don't file late returns as it affects deductee tax credit
• Don't quote incorrect TAN vis-à-vis TDS payments

 The process of filing of e-TDS /e-TCS returns is available in detail at following websites www.incometaxindia.gov.in or http://tin-nsdl.com.

8. Issue TDS certificates as per existing procedure and within the time prescribed as stated below:

The certificate should be issued within one month from the end of the month in which the income is credited however for credit entries made on 31^stMarch, due date is 7^th June,  except in the case of salary where the certificate has to be issued by 30^th of April of the following financial year in which the income was credited.

9. File e-TBAF (In case of Govt. DDO's where TDS is credited in Central Govt. account through book adjustments)

Procedure: 

TDS defaults

Failure to deduct the whole or part of the Tax at source (non-deduction, short deduction or delay in deduction)

1. Failure to deposit whole or part of the TDS (non-deposit, short deposit or late deposit)

2. Failure to apply for TAN within the prescribed time limit or failure to quote TAN on allotment as required under section 203A.

3. Failure to furnish, in due time, TDS returns or TDS certificates or to deliver or cause to be delivered a copy of declaration in form no. 15H/15G/27C/copy of quarterly statement.

4. Failure to mention the PAN of the deductee in all quarterly statements as well as in all certificates furnished.

Consequences of Defaults

The following chart indicates the nature of default and its consequences which range from penal interest, penalty to prosecution:

In addition to the above, there are other consequences in certain cases, as enumerated below;

▬   Disallowance of specified expenditure (while computing the income of the deductor) if TDS is not deducted from the payment. (Section 40a(ia)).

▬   Where the tax has not been paid after its deduction it shall be charge on the asset of the defaulter to recover the amount of TDS. (section 201(2)).   

TAN

Every deductor is required to obtain a unique identification number called TAN (Tax Deduction Account Number) which is a ten digit alpha numeric number. This number has to be quoted by the deductor in every correspondence related to TDS.

Format of TAN: